Foreclosure By Judicial Sale

Introduction

As we noted on the What Is A Foreclosure? webpage there are several types of foreclosures.  We discussed a Foreclosure by Judicial Sale (also known as a Judicial Foreclosure), Strict Foreclosure, Foreclosure by Power of Sale, and Deed in Lieu of Foreclosure.  This page will be dedicated to speaking about the process of foreclosure by judicial sale (judicial foreclosure herein).  However, so we are able to discuss in without confusion what is a judicial foreclosure we will briefly describe each type of foreclosure.

Foreclosure by Judicial Sale (Judicial Foreclosure) - is the process of the bank (lender) launching the legal process to sell the borrower’s home under the supervision of the court because of the homeowner’s failure to comply with terms and conditions of the loan agreement (paying their monthly mortgage) signed by both parties upon purchase of the home. 

Foreclosure by Power of Sale (Non-Judicial Foreclosure) – Foreclosure by power of sale occurs when the borrower defaults on his/her loan and the lender, per terms of the contract, initiates the right to sell/auction the home without going through the judicial process. 

Strict Foreclosure – Strict foreclosure-Please note this option is involved only when the home/property is valued for less than the loan.  Many states allow the homeowner to appeal the judicial decision on foreclosure.  If the outcome favors the homeowner the court will set a hard date for the borrower to pay their current and past due mortgage payments to the borrower.  If the homeowner fails to meet their obligation the lender will obtain title of the property.

Deed in Lieu of Foreclosure- When a borrower voluntary files for foreclosure on their home.

The two most common types of foreclosure are judicial foreclosure and foreclosure by power of sale.  Deed in lieu of foreclosure is becoming a more common practice with families because of their economic situation.  When comparing the two common types of foreclosure lenders prefer foreclosure by power of sale because it saves them a considerable amount of money in legal fees and court costs.  Additionally it almost renders the borrower powerless.  On the other hand, judicial foreclosure is more beneficial for the borrower and is used when there is not a power of sale clause in the loan contract.  The reason a judicial foreclosure is favorable for a borrower is because a court case can be ongoing for months and become very expensive for a lender.  When the lender goes to court they are trying to obtain an approval for a deficiency judgment.  Note a deficiency judgment is a when a judge rules in favor of the lender and requires the borrower to pay the remaining balance on the loan note if after the foreclosed home was sold and a balance remained on the note.  The lender may not come after the borrower if he/she is a protected borrower which normally is used when there is a power of sale clause set up in the contract (See non-judicial sale).  The only 99.99% guarantee that a lender is unable to get a deficiency judgment on property is if the property had been abandoned six months prior to the foreclosure on the home. Finally, the borrower may threaten to sue the lawyer which the lenders usually do not want so they try to resolve the foreclosure sooner with the borrower.

Process of Foreclosure

Judicial foreclosure as noted above is when a lender takes a borrower to court due to their delinquency in payments of the mortgage.  The lender hopes to acquire the title of the property and have a judge grant a ruling in their favor to force the borrower to pay any remaining balance on the loan after the lender sales the foreclosed home.  Prior to the foreclosure process beginning a lender has to file a complaint against the borrower in addition to obtain a decree of sale from a court which has local jurisdiction over the property.  Once a complaint is filed it may take up to six months before the court makes a ruling on the foreclosure.

The process leading up to the point in which the banks or lender files a complaint with the local courts is as followed.  The borrower has to be three consecutive months delinquent in payments to the lender.  Then the lender has to prepare a Notice of Default (NOD herein) which has to be filed with the local clerk of the courts office or local county recorder. After a borrower has been notified of their default they have a specified time (usually 30 to 60 days) to comply.  If the borrower does not comply within the specified time period the lender will begin the judicial process of foreclosing on the borrower’s home.  In addition to the foreclosure process a lawsuit will be filed against a borrower which the public be notified because the lender has to file a lis pendens with the county to tell them.  After the judicial process, lawsuit, and lis pendens have been filed correctly with the local county the borrower and any other parties that are at risk of losing their stake in the property have almost three weeks to respond formally.  This response may include asking for a court to extend the time of when the case will be heard because of extenuating circumstances or they need more time to prepare their defense.  A borrower may just ask a court to completely dismiss the case. Mortgage Foreclosure Report wants to make it a point here to note this is exactly why it is important to obtain a lawyer.  Many people do not know they can file for an extension also they are misinformed or overlook (due to their duress)  the fact a lawyer can help draw out the case for a longer period of time, thus allowing them to stay in their home for several additional months mortgage free.

After the formal response period a date for the foreclosure case to be heard will be set.  This trial is short.  The lender or borrower has to be careful when filling out the paperwork prior to arriving at court for the trial.  They have to determine that all affected parties have been named in the case.  In other words, any persons who acquired an interest in the property after mortgage had been obtained by the borrower must be properly named in the court case prior to the home being sold. This will help to ensure the title to the property is valid when it is received by the purchaser.  When a foreclosure is carried out in the court of law the debt is settled in the following order.  First, the money received from the sale will go to settle the balance of the mortgage.  Second, any persons who had a lien on the property due to an outstanding debt will be paid.  Third, the borrower will receive any remaining money. Once the home has been officially foreclosed on by the courts the lender has the ability to sell the home at an auction.  Note the borrower has up to the week prior to the auction to pay the default and stop the foreclosure.  When a home is going to be auctioned from a judicial foreclosure there are specific rules the lender has to follow.  The rules are:

  • The auction of the foreclosed home has to be advertised for at least a month to a month and a half
  • The lender has one month from the date of ruling to record a certificate of foreclosure which must address the following:
    • A description of the property
    • How the proceedings for the foreclosure will be handled
    • When the title to the mortgage became absolute
    • The notice of sale must contain the following:
      • time and location of the sale
      • correct property address of the sale
      • The owner of the titles name
      • Address of the location the sale will be held
      • The phone number of a contact where the sale will be held

If the auction of the home has to be delayed it must be done at the foreclosure sale location on the original auction date.  If the property is unsold at the auction or the lender chooses to not sell the property at an auction the property is called a Real Estate Owned property (REO herein).  You have to the ability to look for these homes in newspapers, classified sections online, or some of our advertising websites.  These sites are great to help find homes that are for sale as foreclosures.  Mortgage Foreclosure Report likes to refer to them as bargain homes.  We will discuss this further in our How to Buy A Foreclosure webpage. 

Unfortunately once your home has been auctioned off your will be served an eviction notice and if you have not left your home you will receive an eviction lawsuit.  This will remove you from your home immediately.   The only hope a homeowner has are redemption rights that give them up to eight months to repurchase the home after it was sold at the auction.  They must purchase the home for the highest bid plus the accumulated interest.  The only way they may not have redemption rights is if it was disallowed in the original contract or by the courts.  

The time periods discussed above can be found in Civil Code sections dealing with foreclosure, for example Civil Code sections 1367, 2924, and 2945.

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